Corruption and bribery assessment – econometrics algorithms and perception index

Processes assessing the audit risk or fraud risk at company level, call on professional judgment and experience of auditors or antifraud managers considering as risk assessment procedure, the concentric circles technique, in assessing national economic environment, the industry and then the internal environment of the company. If for assessing risks in the industry we refer to the specific regulations and business practices and for reporting and internal environment of the organization, there is a wide range of internal control protocols that are verified and validated, for the national economic environment issues become more complicated. Most audit companies are using the perception indexes issued by Transparency International and World Bank Institute. This paper shows the limits of those indexes and presents an advanced econometric analysis for corruption level assessment. The paper demonstrates that using factor analysis by auditors becomes an instrument of major importance in determining accurate audit risk or fraud risk associated with national economic context.